MemberWorks, Sears to Pay $2 Million in Penalties, Fees

Teleservices firm MemberWorks and partner Sears, Roebuck & Co. entered an agreement yesterday with the California attorney general and two district attorneys who had investigated the companies' marketing program.

MemberWorks and Sears agreed to pay a total of $2 million in civil penalties and fees in response to concerns from the law enforcement officials about consumer confusion over disclosures in MemberWorks' telemarketing pitches.

The money will be split among the state and Ventura and Orange counties. A spokeswoman for the California attorney general's office did not immediately return phone calls seeking comment.

MemberWorks marketed memberships in discount clubs to Sears credit cardholders and members in California.

MemberWorks said it would begin implementing new standards for its telemarketing practices, including enhanced disclosure language. The company also said it would expand its program of sending customers mail notifications before charging them for membership renewals and would fully refund consumers who claimed to have received unauthorized charges.

In addition, MemberWorks has agreed to reimburse Sears for its $500,000 share of the penalties and fees.

MemberWorks commissioned Luntz Research Cos. of Arlington, VA, to test how understandable its marketing disclosures are to the general public. The company claimed that in a poll of 2,000 randomly selected Americans, 85 percent understood the disclosures.

MemberWorks has entered other agreements with the attorneys general of Nebraska and New York in response to concerns about its marketing practices. The company also settled a 1999 lawsuit from Minnesota Attorney General Mike Hatch, who alleged that the company "used confidential information obtained from banks and other institutions to charge consumers for services and products that consumers did not believe they had ordered."

The lawsuit claimed that MemberWorks solicited consumers with free 30-day trial memberships but did not affirmatively disclose to consumers that the company already had their credit card information. At the end of the trial period, the company used the account information to charge consumers a membership fee, according to the lawsuit.

MemberWorks later agreed to settle the lawsuit without admitting guilt by agreeing to change its telemarketing sales scripts, to provide advance notice of any upcoming membership renewal charges and to give double refunds to consumers whom the company failed to tape-record accepting the membership.

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